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2015 (7) TMI 913 - AT - Income TaxProfit resulted to the assessee on share transactions through IPOs, - whether is to be assessed as "business income" or under the head “Capital Gains”? - Held that:- From the findings of the SEBI, it is implicit clear that both the assessees have indulged in violation of SEBI regulations, while making investments in IPOs. Whatever amounts they have illegally earned, which could be assessed as their income, has been taken away from them. They have already disgorged the amount, though, the payment was made after the close of accounting year, and even after passing of the assessment order. But these payments related to same share transactions, which have given rise to the alleged income in the hands of the assessee. The appeal before the CIT(A) is a continuation of the original proceedings. Before the CIT(A), the assessee have already taken additional grounds of appeal on the strength of the SEBI order. Therefore, we find force in the contentions of the ld. Counsel for the assessee that ultimately no income has resulted to the assessees, out of these share transactions. The income of ₹ 30,98,785/- and ₹ 29,17,331/- is to be excluded from the hands of Smt.Reetaben R. Thakkar and Shri Monal Y. Thakkar respectively in the Asstt.Year 2006- 07. As far as the claim of the assessee with regard to settlement charges are concerned, we find that there is no corresponding income against this expenditure. The income, which we have already excluded, therefore, the assessees cannot claim the expenditure, because, the expenditure has to be incurred for earning some income. Once the income is not form part of the total income, then against that activity, how the assessee can claim that expenditure ? The SEBI has issued a scheme permitting such defaulters to make payment in order to overcome that default. Thus, the payments were not made in violation of certain penalty provisions. In the present case, no such payment was made by the assessees. The assessees have financed certain fictitious entities and benami persons to apply for IPOs. There modus operandi is against SEBI regulatons, particularly, Section 12A of the SEBI Act, and therefore, the payment was on account of violation of provisions of SEBI. The assessees cannot claim that these payments are compensatory in nature. For these reasons we do not find any force in the contentions of the assessees. As far as the appeal of the Revenue in the case of Smt.Reetaben R. Thakkar is concerned, the ld.First Appellate Authority has held that amount of ₹ 5,48,385/- is to be assessed as short term capital gain. We find that the ld.CIT(A) has recorded a specific finding that investment to this is a bona fide investment of the assessees, and it has no link with the other IPOs investments. An assessee could be trader and investor at the same time. For the investment in IPOs. through fictitious entities was considered by the CIT(A) as organized business activity, and rest was as a simple investment. The ld.CIT(A) has rightly treated the assessees as investor qua the surplus amount of ₹ 5,48,385/-. Therefore, we do not find force in the appeal of the Revenue.
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